ENVIRONMENT: Changing Risk Landscape
Recent Western Cape Business News
A recent research study conducted locally by the CSIR, Santam, the University of Cape Town and WWF demonstrates that the insurance industry, with its expertise in risk assessment and risk management, can play a strong role in building climate-resilient communities.
The study, conducted in the Southern Cape where insurers have experienced an increase in losses due to a number of environmental, social and governance factors, reveals three major findings in relation to the changing risk landscape:
1. Climatic changes are driving risks higher.
2. The human impact on the ecological environment is as important in determining our vulnerability to climate risk (for example, deforestation greatly increases the damage from floods)
3. In a socio-ecological landscape, the actual level of risk is determined by the non-linear interactions between the different drivers of risk
The implications of the study are significant, as they illustrate that human-induced impacts on the ecological buffering or ‘bounce-back’ capacity of the system have an equal or greater impact on risk, as compared to future climate change predictions.
The study also shows that the proactive management and restoration of these ecological systems has the potential to offset most of the future increases in risk related to climatic changes.
“The global insurance industry has mainly focused on refining the quantification, differentiation and pricing of the risk exposure of insured assets, but our findings call into question a sole reliance on this risk assessment strategy, and identified the need for a more proactive risk management approach," says Dr Deon Nel, Head of the WWF’s new Biodiversity Unit .
“It is a critical study for us,” says John Melville, Santam’s executive head of risk services.
“The report sheds light on how climate change and human interventions are changing the level of risk in a landscape, and provides valuable insights into how we can collaborate with key stakeholders, such as local municipalities, to influence the key drivers of risks and improve the overall resilience of the landscape.
“While improving our underwriting capability is equally important, we will need to adopt a more pro-active and collaborative risk management approach to ensure that our industry will grow sustainably,” concludes Melville.
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